Health Insurance Is the Problem, Not the Solution

President Obama ran on a campaign (among other things) to solve the cost of health care crisis in this country. His proposed solution can only make matters worse, not better.

Two things drive up the cost of a product in a market economy: supply and demand.

Obama's proposal eliminates the market economy by eliminating all competition, then forcing everybody to pay for his "public option" instead. He doesn't say all this, because our President-trainee does not understand markets.

In a market economy both buyers and sellers are free to transact their business or not. People who decide that there is profit for a seller in the transaction can produce the product and sell it for what the buyer is willing to pay. If they decide there is no profit, the supply is diminished, driving up the price until there is sufficient profit to motivate producers to enter the market. If the price is too high, buyers stop buying and the reduced demand results in over-supply, which encourages producers to reduce their prices. The market stabilizes at a price that free buyers are willing to pay and free sellers are willing to produce it for. That is usually slightly higher than it costs to produce, the difference being the profit margin which motivates producers. If the profit margin is too high, other producers will enter the market at a lower profit margin and take their business away. The system works and it works well.

The problem with spiralling health care costs is that we do not have a truly free market, because the buyers are not the consumers. The buyers of health care are the insurance companies. They repackage their plans and sell the package to the companies and individuals who pay fixed premiums regardless of how much service they use, so that most of the actual health care costs are paid by the insurance companies, not the consumers. That makes health care "free" to the consumers. There is no limit to demand on free products, and demand drives up the price. In a free market.

The way to manage the cost while restoring and maintaining a free market is to eliminate the insurance companies. You can't just outlaw them -- although Obama's plan effectively does that -- what you need to do is restore the freedom of choice to the consumers. Make it worth their while to consume fewer health care services. Allow them (not the insurance companies) to keep the money not spent on health care, and they will make informed and reasonably intelligent choices about when to spend it. Insurance is the problem, not the solution.

The people who will object to this idea are the people whose lifestyle choices lead to bad health and thus to higher medical needs: the smokers, the obese, the sexually promiscuous, the thrill-seekers and the clumsy. A very few are born with health problems we do not (yet) know how to prevent; they will be unhappy also. This is not all that different morally from the fact that some people are born into wealthy families and some people are born poor. It's the luck of the draw. Government efforts to equalize wealth only serve to reduce everybody to (equal) poverty, because it is the prospect of great wealth that drives people to do things that increase the wealth of the nation. The rising tide lifts all boats, but it raises the boats of the hard workers even more. That is what motivates them to work for it.

If everybody pays for their own health care, then the rich people will have better health care. They also eat better food and drive nicer cars and live in bigger houses. That is the nature of wealth, and it is not immoral. The prospect of great wealth motivates people to produce products that other people are willing to pay for, and they are willing to pay for these products because they make life more pleasant. Furthermore, the rich people spend more money on their nice products, which enables opportunistic people to increase their own wealth by producing the products these rich people are willing to buy. The result is that when people get rich in a market economy, everybody benefits. If they want to.

There are also poor people who cannot afford nice cars and big houses and fine food -- nor the best health care. Some of these people cannot afford food and housing at all. There are charities to provide minimal food and housing to people willing to meet their requirements. The people who are unwilling, go without. That too is the nature of a market economy, that you can choose to do without the things that hard work would pay for. Health care is no different, and there are (or can be) charities that provide it to indigents. Unless the government gets in the way.

Obama's proposed solution is opposed to free markets. He wants to cap the price people pay for health insurance without providing any incentive for them to limit their consumption of services. Demand therefore increases without any limit, but supply becomes limited by the reduced profit incentive. Doctors will drop out and go do other things that better reward their efforts. Insurance companies will discover that they cannot afford to stay in business at these reduced prices and higher costs, so they will drop out also. That leaves only the "public option" funded by taxes. Taxpayers will protest, so the government will limit supply by various means such as delay and outright refusal. The quality of health care will drastically go down -- as indeed it must in any system that attempts to equalize wealth by government intervention.

The rich will always be able to access quality health care -- on the black market if the government attempts to make it unlawful, but they can do that. The only difference is that large numbers of middle-class people who now pay high prices for their health care, they will not be able to get it at any price because of the reduced supply. Sure, they will have the government-mandated insurance, but (as reported in England, where this kind of program is already operational) the waiting period or the quota lotteries will make it inaccessible.

Do you want that kind of health care? I don't.

Tom Pittman
2009 December 9


Essay "Health Insurance Is the Problem, Not the Solution" (you are here)
How to Fix the Health Care Problem
Blog post, hospital administrator admits "I'm responsible"
My letter to President Obama
A Physician's perspective
A better solution, without raising taxes

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